What does the vertical distance between TC and VC represent on a graph?
Fixed Costs (FC).
At what point does MC intersect AVC and ATC?
At their minimum points.
What happens to the MC, AVC, and ATC curves when variable costs increase?
They all shift upward.
What happens to the AFC curve when variable costs increase?
AFC does not shift.
Describe the shape of the AFC curve.
AFC decreases as quantity increases.
Describe the typical shape of the MC curve.
Initially decreases, then increases.
Describe the typical shape of the AVC and ATC curves.
U-shaped.
What does the graph of TC, VC, and FC show about the relationship between TC and quantity?
Total cost (TC) increases with quantity, while fixed cost (FC) remains constant.
What does the intersection of MC with AVC and ATC signify?
Minimum points of AVC and ATC.
On a cost curve graph, what happens to the distance between ATC and AVC as quantity increases?
The distance decreases because AFC approaches zero.
A company rents a factory for $10,000/month. How is this cost classified?
This is a fixed cost because it doesn't change with the level of production.
A bakery uses flour to make bread. How is this cost classified?
This is a variable cost because the amount of flour used changes with the number of loaves produced.
A firm makes $50,000 in revenue and has $30,000 in explicit costs. What is the accounting profit?
The accounting profit is $20,000 ($50,000 - $30,000).
A firm makes $50,000 in revenue, $30,000 in explicit costs, and forgoes a $10,000 alternative. What is the economic profit?
The economic profit is $10,000 ($50,000 - $30,000 - $10,000).
If a company's ATC is $10 and it produces 100 units, what is its total cost?
The total cost is $1,000 (ATC x Quantity = $10 x 100).
If a company's variable costs are $500 and it produces 100 units, what is its AVC?
The AVC is $5 (VC / Quantity = $500 / 100).
If a company's fixed costs are $200 and it produces 100 units, what is its AFC?
The AFC is $2 (FC / Quantity = $200 / 100).
If producing one more widget increases total cost from $100 to $110, what is the MC?
The marginal cost is $10 ($110 - $100).
How does specialization affect marginal cost initially?
Specialization initially decreases marginal cost.
How do diminishing returns affect marginal cost?
Diminishing returns increase marginal cost.
A company increases production. What happens to AFC?
AFC decreases as fixed costs are spread over more units.
What happens to AVC and ATC when MC is below them?
AVC and ATC decrease.
What is the key difference between the short run and the long run?
In the short run, at least one input is fixed. In the long run, all inputs are variable.
What is the difference between accounting and economic costs?
Accounting costs are explicit costs. Economic costs include both explicit and implicit (opportunity) costs.
What is the difference between accounting profit and economic profit?
Accounting profit is TR - Accounting Costs. Economic profit is TR - Economic Costs.
Differentiate between fixed and variable costs.
Fixed costs do not change with output; variable costs do.
How do AFC, AVC, and ATC differ?
AFC is fixed cost per unit, AVC is variable cost per unit, and ATC is total cost per unit.
